Topics covered: Economies of scale
• Meaning
• Internal and external growth
• Economies of scale
Lion Air Private Limited (LAPL) operates from Indian capital city New Delhi. The company has 5 flights and 5 domestic destinations. It is a budget airline and also offers heavy discounts for frequent travellers. The capacity utilisation of each flight is around 90 % and the company has recorded 95 % on time departure and arrival. This is one of the biggest reasons for successful flights. LAPL also offers heavy discounts for those passengers who pre book onboard meals and snacks.
The company is managed by two friends who have more than 15 years of working experience in European airlines.
Due to growing demand in the domestic market, the company has decided to lease 3 more air planes and fly to 5 more destinations which are commercially and culturally rich. This internal growth plans also brings various economies of scale which will help LAPL to reduce operating cost and increase profit.
Questions:
a) What do you mean by the term, ‘economies of scale’? [2 marks]
b) Distinguish between internal growth and external growth? [4 marks]
c) Identify and explain two internal economies scale that LAPL may experience due to this growth plan. [4 marks]
